We bought a house several years ago that was beyond our ability to borrow, but we needed it for a business purpose and it was perfectly suited to this purpose, so what the hell?

We had good cashflow for the loan repayments, but not enough deposit to use a normal loan. This was before all the LoDocs etc had hit the market in a big way.

Through our M.B we were able to do a Vendor finance over 5 years for part of the funds and we put in some deposit of our own from our PPoR sale. The Vendor was not needing the money, but was having trouble selling the house due to the price range, so was receptable to this deal.

The deal was;
$100k Vendor finance @ 10% interest only over 5 years (interest rates at the time were around 8.5%, when the balance of the Vendor Finance loan needed to be repaid, or sooner by agreement. The Vendor simply left his equity in the house and we paid him interest on it, so there was no other loan except our Bank loan.
We put in $100k of our own money and the Bank supplied the rest on a standard 5 year I.O loan, which then reverted to P.I.

We sold the property after 3 years and cashed everyone out. It worked well for all concerned.

My property Management varies from 6 to 7.5% plus G.S.T.
If you are wanting a quick estimate of total holding costs for an I.P, allow 20% of the rent to be swallowed up by the costs (not including loan interest).
This figure includes:-
4 weeks vacancy per year,
insurance (Landlord and building/contents)
rates (water, council)
management
repairs/maintenance.
etc.
In my experience I have never actually paid out this much (mainly due to low vacancies and minimal maintenance required) but it is always better to slightly over-estimate costs and under-estimate income.
If the figures look good after applying this rule then you know you won't get any unexpected surprises.

Peter, that was a good post that ended badly.

Good to see we have helped you change your mindset and get stuck into it, but…..

The old people I know who are tight are that way because they have no money.
The old people I know who are rich are very, very generous and live life well.
When you consider that the current "old" generation consists mostly of pensioners, then it stands to reason that you will run into a lot of old people who annoy you with the comments that you mentioned.
Go easy on them; you'll be old one day.
Instead, listen and learn from the poor oldies how not to end up like them – don't do what they have done, and do what the rich oldies have done. They've been there and done that.

Old people are not necessarily full of shit. If you remember back to your original post; you were full of shit and it pissed all of us off.

The old people did have it tough;
they had the depression, the second world war (conscription), vietnam and agent orange, one-car families (if they had a car at all).

They didn't have;
Ipods, computers, on-line banking, atm's, email, HD tv, dvd's, GPS and mapquest, google, microwaves, drive thru take-away, 24 hour trading, no interest for 2 years finance on everything, Hecs, bulk billing, luxury 4 wheel drives, cheap air travel, credit and debit cards, packet everything food, fan-forced fridges, climate control, ensuites, disneyland, flu shots, plastic bags, aluminium beer cans, vending machines, cell phones, cordless phones, no operator long distance calls, text messaging, fax machines, light weight pushbikes and tents, freeways weren't invented, infra red rays, supermarkets, home delivery pizza, pre-mix spirits in a can, imitation gas log fires, velcro, gore-tex, 38 hour weeks, insinkerators, webcam, digital technology, netflix

DO I NEED TO GO ON??

A lot of the property gurus talk about never working and being able to buy property, and I often wonder how they manage to keep getting finance form banks with no income (other than rent). I think a few details are conveniently left out, unless they have been extremely creative with finance.

Personally, I think rental income can be more reliable than earned income as you can get fired or laid-off from your earned income job, but banks don't seem to see it that way.

I think the ideal situation is to accumulate investments (properties or other) that produce a positive income, and also continue to grow in value.

Eventually you will get to a point where the combination of the rental/dividend/business profit and cap growth allows you to easily service the debt, and you can live off the increasing rent/dividends/profits as well as the equity in the investment portfolio.

If property increases at an historical level of 7% per year average, you would need a net worth of around $1mill and a pos cashflow portfolio in order to live off the equity and rent to have a decent lifestyle of around $50k per year spending money. At around $1k per week income after investment outgoings, you should be able to live a nice life without being too extravagant.

This would allow you to use some of the equity, and still have the portfolio increase in value at more than you are spending.

So the trick, I guess, is to buy properties that come with a combination of good cashflow and growth.

You can leave your PPoR for up to 6 years before you will be liable for C.G.T on it if you ever sell.
The good news is that while your PPoR is an I.P you can claim all the associated holding costs and any loan interest.
It would probably be better form you to move out of your PPoR and rent somewhere yourself, and keep the two existing properties both as I.P's.
Rental living is cheaper than home owning in most cases; especially when you consider the tax deductions you will get from the two I.P's.
As Terry says; the purpose of the loan is what the A.T.O looks at and you are simply moving the money from one place to another. The overall debt on the two I.P's is the same no matter which property it is assigned to. It's a waste of time and will cost money.
I would be doing the above, and pouring all the excess cash from the the difference between what your rent will be that you have to pay and what your mortgage would be if you were still living in your PPoR and not getting any tax deductions, and also pouring all tax return money back into the PPoR mortgage as well to reduce the debt.
After 6 years of renting somewhere else you should have put an enormous hole in the PPoR mortgage, you can move back in and have a fairly low PPoR mortgage and lots of equity and you can invest again.
Or, why not keep renting nice houses forever and keep on buying more I.P's?

That's true what raddles says; the property tax I was referring to was the yearly tax that homeowners are required to pay in the U.S. it's around 1.25% of the property value apparently.
In Aus we don't have that.

True story (but funny).
Driving in my car the other day with my 5.5 year old son. He says, out of the blue; "Dad, when I see girls, or think about girls, I get a tingle in my willy".
I, of course, kept a straight face and informed him that this was perfectly normal (but is it?)
Lock up your daughters?

I said: "For example; if I have $400k to spend on a property, and at the auction my nearest competition only bids $385k, do you think I will bid the full $400k to secure the property? Absolutely not Jon; I'm going to offer $385,500, or even $385,100 thus robbing the Vendor of $15k that I might have had to spend if there was genuine interest in the property and I had to offer my best price, not knowing what other buyers have offered".

Jon said: "This is right out of the Jenman handbook and is exactly an indication of how he works on peoples fear of loosing money. Let be honest, everyone knows that all Sellers have an inflated value of their property and all Sellers believe that they have paid too much for it and all Agents do nothing but get paid for just being there. But lets look at your example from both sides of the scenario".

Whether the above scenario is straight out of the Jenman handbook as you say, the above scenario of only bidding just enough to buy the property is one that I have witnessed many times myself. Neil didn't invent the scenario; he just reports on it. He has exposed the practices in public and agents don't like him for that.
Don't forget Jon that I am also a TERRY RYDER fan as well. He is a highly respected lawyer, specialising in property related issues. He has similar views as Neil and his website http://www.hotspotting.com.au is a great site for educating comsumers and investors alike.
Both of these men are successful in their own right before they ever started to go public with their views and findings. They don't need the extra money.

On the subject of the Vendor's inflated view of their properties' value, if the agent knows this, then why doesn't he/she say to the Vendor; "no, your house is not worth $500k; it is only worth about $450k and you are asking too much".
The agent chooses to say nothing because he/she knows they would not get the listing; no listings = no sales = no commission = no food on the table, so they go along with it and work on the Vendor, or hope for the best. The Vendor meanwhile, is waisting everyone's time either knowingly or unknowingly, and the agent facilitates this waste of time knowingly.
I once bought a house 8 months after it came on the market; having to wait until the price came down to somewhere near what it was really worth. Throughout the 8 months there were 3 different agents handling the sale (a Private Treaty sale). Did the agents try to tell the Vendor his price was way too high and he should drop the price? maybe. But with each agent the starting advertised price was the same as the with the last agent.
What we need is for a qualified valuer to tell the Vendor what the property is (officially) worth based on the valuer's expertise, then the Vendor makes up their own mind what they want to sell the property for. If it is priced correctly, it will sell in a few days to a week, if it isn't priced correctly, it will sit there until the Vendor comes to his/her senses and lowers the price.

On the subject of Neil Jenman using fear; he alerts people to the games and practices in the industry; just like I did in my post. This makes people educated, more informed and less likely to waste valuable time and money during the process of buying and/or selling. Many people spend many dollars and hours on building inspections etc, not knowing that they haven't got a hope in hell of every being able to afford the property they are hoping to buy. At least if there is a price tag on the property to begin with, they can then decide whether they can afford it or not, or make an attempt to haggle the price down to one they can afford. The haggling process, which pisses everyone off, is part of the deal, and the agent is paid handsomely to ferry the information back and forth. That's what they get paid for, and Vendors know they are always going to receive an offer below what they are asking unless there is a boom frenzy going on.

Of course; we could always just haggle directly with the Vendor and cut out the agent and save several thousand dollars for the Vendor in commissions; how would that be Jon? I'd love that, but not many people are game to sell their property without an agent unfortunately.

Even though I was talking to you Jon, I was actually trying through my post to alert many of the newbies on this forum to these situations and maybe they can avoid them; not fill them with fear. When I first started in property I had little education, so I was filled with fear. Now I have the education and the fear is gone.

Legislation is always changing to hopefully make things better in the auction process; but again, it is proof of the argument that there has to be legislation brought in in the first place to protect the consumer from what is largely a process rife with highly unethical tactics that cost consumers lots of money. And even though the legislation has/is changing; the auction process (at least in Victoria) is ostensibly unchanged and very little intervention by authorities ever happens to punish the bad guys. I am yet to see an agent get put out of business for underquoting an auction in Victoria.

I think there were a couple of agents fined in the last couple of years; it's a start.

Don't let this unfortunate experience put you off. Learn from it and keep on investing. At 21 you will be a wealthy person by 40 years of age.

1# Does a bust always follow a boom
2#Must housing value drop and can it just stall
3#Will the mining boom postphone a bust or can you bust even with the china fueled mining boom.
4# Can a change in government really bring a bust or is it just a bad time to win.It depends what you call a bust.

In recent years there have been a few media reports of massive drops in house prices in isolated incidents, but the argument could be raised that there were a lot of idiots with a lot of expendable cash, equity or finance who paid too much for their properties during the boom, who got caught financially, had to sell and took a big loss. This happens all the time.
Personally, I think that generally there is a lull happening – not a bust.
A well purchased property in a good area will never bust. People have to live somewhere, and they want to live in good areas and pay a fair price. Find these areas, pay fair market value or less if possible, and you will be fine.
People only do badly in property when they buy under more speculative circumstances; off the plan, highly geared with high LVR, marginal loan servicability, less desirable areas with inflated rent returns, no due diligence, flippers buying at the wrong point in the cycle, financially illiterate, etc. These people are essentially gambling; not investing.
The mining boom is a little harder to predict, but my feeling is that with the continued requirements of the developing countries such as China, India, Indonesia – 3 of the biggest populations on the planet, there will be long-term demand for our resources (unless they run out) so the prices of real estate in those areas will remain steady or continue to grow. of course, apply above rules to speculative purchases.
Govt has tried to interfere with the normal cycles of property with terrible results; the abolition of neg gearing in the '80's was one such event. This caused a massive sell-off of property and caused a huge shortage of rental properties that saw rents rise extremely high.
The F.H.O.G has only added to the continuing problem of low affordability as new home buyers use their free money to buy property when they normally wouldn't have been able to, or possibly weren't able to buy a more expensive home, so the demand for housing kept on going and affordability has only gotten worse. Of course, this is partly due to the ever-increasing consumer debt trend as well; people are going further into debt and have less funds available to service a home loan.

If you are looking for an answer on whether to invest now or wait; the answer is buy now and do a lot of research on the area and property prices, rent returns, expected cap growth etc before you buy. As soon as you are in a financial position to buy then you should.
Whether there is a boom or a lull, there are some areas that do well no matter what the state of the market, and there are always pockets that are booming when the majority of areas aren't.